Gogo Works to Capture More of a Nascent Market

Recently covered Boingo is working hard to get a footing in the air travel Wi-Fi space. It has to face tough competition from an existing airline Wi-Fi services provider, Gogo Inc. Illinois-based Gogo was founded in 2005 and now provides Wi-Fi services on nine major airlines in North America, including Delta, Virgin America, US Airways, and American Airlines. At present, there are only ten airlines on the North American continent that provider Wi-Fi access aboard their planes.

Gogo’s Financials
Gogo organizes their business into two operating segments – commercial aviation and business aviation. The commercial aviation segment provides in-flight connectivity and digital entertainment solutions to commercial airline passengers through personal Wi-Fi enabled devices. The Gogo platform lets passengers subscribe to Internet services, watch Gogo-provided on-demand entertainment on a pay-per-view basis, and access additional content such as destination-based event ticketing, e-commerce, flight trackers, and travel and weather information.

The business aviation segment deals with selling equipment and services for in-flight Internet connectivity and other voice and data communications through Gogo Biz and Aircell branded products and services to original equipment manufacturers of private jet aircraft.

As of September 2011, Gogo’s services were available on 1,177 commercial aircraft, translating to approximately 85% of Internet-enabled North American commercial aircraft. In addition, they had contracts in place to add a further 525 planes to their install list. Gogo has more than 4.4 million unique registered users. They also had more than 700 Gogo Biz systems in operation and 4,600 aircraft with Iridium satellite communications systems in operation.

Gogo earns revenues through fees charged for Gogo Connectivity and services from their commercial aviation flyers. Subscribers can purchase individual sessions, monthly renewable subscriptions, and multiple session packages. In addition, the company generates revenues through advertising fees and e-commerce revenue share arrangements. Their business aviation segment earns revenues through the sale and installation of satellite and networking equipment and from subscriptions for in-flight Internet connectivity and other voice and data communications products and services.

Gogo has seen significant growth in revenues since launch. Revenues grew from $36.8 million in 2009 to $94.7 million in 2010, recording growth of 157% over the year. However, the company is still to turn in profits. In 2010, losses fell from $88.6 million a year ago to $44.9 million. For the nine months ended September 2011, revenues grew 89% over the year to $113.8 million. Losses narrowed from $42.7 million a year ago to $1.8 million. To date, the company has received $150 million in funding from investors, including Ripplewood Holdings and Oakleigh Thorne. They are now working on raising funds through a $100 million IPO expected later this year.

Gogo’s Growth Opportunity
Gogo still has enough growth potential. According to market data, since 2008, Gogo’s services have been made available to 355 million passengers. However, a mere 4%, or 15 million, Internet sessions were purchased during this period. The growth of the mobile devices will help push their revenues. Researchers agree that the demand for Internet in the air will continue to grow, but they are still not sure about the “fair value” of such services. Gogo themselves are still figuring that out. According to their reports for the nine months ended September 2011, Gogo earned a rater small $0.41 per passenger for their services. A year ago, that number was $0.26 per passenger and in 2009, they reported revenues of $0.15 per passenger.

Analysts have written at length about how airlines of today are looking for ways to differentiate themselves from their competitors, and Gogo may be able to provide that platform. Earlier this year, Delta Airlines announced plans to spend more than $2 billion in the next two years to upgrade planes, refurbish airport facilities, and expand their in-flight entertainment options. With new services such as Gogo Vision, their on-demand entertainment system, they could be looking at getting some of this money their way.

Gogo also has international expansion on the cards. They will work to leverage their strong commercial aviation partnerships and flexible technology to capitalize on the large transoceanic and international in-flight opportunities.